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Overdue collections can be a problem in South Africa. There is a culture of late
payment as well as one of non-payment.
Payment between 80 and 120 days after acceptance is most common.
It is a proven fact in South Africa that any unpaid account which is already 180
days in arrears becomes very difficult to collect. The chances of a successful
collection after 180 days past due decreases by at least 50 %.
It is also more effective to negotiate than to commence legal proceedings in
South Africa. Legal proceedings should be an option of last resort as lawyers
are very expensive, courts in South Africa can be unreliable and the legal
processes take a long time to finalise.
Besides going for negotiation it may be useful to include an arbitration clause
in the sales contract.
Out of court
As said above, it might be recommendable to seek a solution by negotiation
first.
If a consignment is shipped on open account and if the buyer fails to make
payment on the due date, then supplier should not, under any circumstances
whatsoever, offer extended repayment terms, thereby changing the original
contract terms and compromising any possible claim in the courts.
It may be advisable to consult a local collections agent as soon as possible, as
time is of essence in South African collection cases. A collection agent will
usually try to negotiate repayments without changing or compromising
the original contract terms and also monitor the repayment programme.
In case of ongoing default it may be necessary to threaten with legal action.
But if the legal process has not yet started and the buyer makes an offer of
compromise, then the offer has to be considered along with the buyer's financial
circumstances and a decision arrived at.
At any case, a compromise offered should only be considered along when obtaining
firm securities (e.g. written acknowledge
of debt, directors or shareholders personal suretyships, notarial bonds and
mortgage bonds etc).
Default interests can only be recovered if a clause is included in the original
contract. In the absence of a costs clause,
then interests can only be claimed in a legal summons from the date of the
summons.
Legal proceedings
In general, the legal route has to be an option of last resort, and litigation
should be considered only where the amount
of the claim warrants it.
However, the financial status of the buyer must be investigated first as it is
not worthwhile entering into a three year litigation if there is no reasonable
chance that the final judgement can be executed upon.
Therefore, the buyer must have sufficient unencumbered assets capable of being
attached to satisfy any such judgement.
If the matter is pending before the courts, any settlement offer should be
considered prior to the trial on a "cost versus
return" basis and, if accepted, must be capable of being made an order of court.
Such settlement negotiations mostly happen on the steps of the court on the
first day of the trial, so substantial costs have will have already been
incurred.
All disputes with claims below South African Rand 100,000 can be heard in the
local Magistrates Court having jurisdiction where an advocate (i.e. Counsel) is
not a requirement. All matters above that value have to be heard in the High
Court, where senior and junior advocates are a prerequisite and which are,
therefore, more expensive.
The effectiveness of decisions in the Magistrates Courts is very questionable.
Magistrates courts are usually backlogged and lack personnel, which often makes
proceedings time-consuming and in the end very costly.
The effectiveness of the High Courts is generally good, but proceedings can also
be very time-consuming (minimum three years
in the High Court on an opposed basis).
Should a claim be based on a liquid document (e.g. acknowledgment of
debt/dishonoured cheque) a Provisional Sentence
summons can be applied for, which is heard in the High Courts only.
A Provisional Sentence summons removes the onus from the creditor to prove its
claim, while the debtor has to put forward reasons why the debt should not have
been discharged.
Once a judgment has been granted, a writ of execution may be issued, followed by
attachment.
Attachments are made by the Sheriff of the Court. In the first instance the
debtor’s movable assets are attached, followed
by an attachment of immovable assets in the second instance, subject to sale in
public auction.
Statute of limitations
In South Africa, the statute of limitations is three years for a foreign
creditor.
Arbitration
Compared to ordinary court proceedings, arbitration offers many advantages, e.g.
faster procedures, closed hearings
and the finality of the rulings.
When agreeing on an arbitration clause, the
underlying contract or separate agreement
must expressively provide that disputes will be resolved through arbitration.
It should also clearly define the arbitration institute that will administer the
case and the official language to be used.
South Africa has ratified the United Nations Convention on the Recognition and
Enforcement of Foreign Arbitral Awards. Therefore, the parties are free to agree
on international arbitration courts outside South Africa, as foreign arbitration
awards are recognised and can be enforced.
Lawyer and court fees
In South Africa, the legal profession is divided into two branches: attorneys
and advocates. While attorneys usually
focus on general legal consulting, advocates are specialised in certain areas
and the presentation of cases in court.
Advocates are not permitted to accept cases directly from the public. They are
engaged by attorneys on their behalf.
Attorneys/advocates fees are not fixed by statute. The fees are subject to
negotiation and are usually charged on a hourly
rate.
Court fees are calculated by reference to the amount in dispute. In general, the
losing party has to reimburse all
legal costs of the winning party, but in practice the winning party has to pay a
substantive portion of its own legal costs
(30 %-50 %).
This makes litigation in South Africa quite expensive.
It must be borne in mind that any overseas creditor taking legal action in a
South African High Court will be called upon by the buyer to pay security for
costs.
This is a deliberate ploy on the buyer's part to discourage or delay legal
action being taken against them. The security for costs required will generally
amount to approx 20 % of the amount claimed in the summons and has to be paid in
cash to the clerk of the court.
Another thing to bear in mind at a trial is that numerous witnesses may have to
be called from overseas to give evidence.
Bankruptcy procedure
In general, bankruptcy procedures in South Africa are fairly cumbersome and
complicated.
Emphasis upon restructuring or rescue procedures has been rather low so far.
There can be a voluntary or a creditor's forced liquidation (the latter can be
opposed).
In both instances, a provision order is granted with a return date of 30 days
later after which, if successful, a final order is granted. Thereafter, the
Master of the High Court appoints a liquidator to wind up the estate.
The liquidator will advise all known creditors of the liquidation and, after
assessing the state of the debtor in liquidation, of its estimated financial
position.
He will then call upon the creditors to lodge their claims in a
prescribed manner.
No claim should ever be lodged and proved at a meeting of creditors if there is
any danger whatsoever of a contribution
into the estate.
The average payment to unsecured creditors is generally no more than
five cents in
the Rand.
The effectiveness of liquidators can be suspect and it depends which liquidator
receives the appointment.
There are professional liquidators who have the
interests of creditors at heart, but there are also cases where liquidators are
biased
and will wind-up an estate in the shortest possible time.
Collection of receivables in South Africa
Safeguarding your credit sales in South Africa
Protecting your credit sales in other countries
Reproduced by kind permission of Atradius
Atradius copyright. The statements and recommendations made herein are for
informational purposes only and should not be utilised as a substitute for
professional advice in specific situations. Therefore we ask for your
comprehension that we can't take over any liability for this report. If legal
advice or other expert assistance is required the services of a professional
should be sought.
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